Oil-Price Plunge Triggers Layoffs in the US, Businesses Shutter

Crude oil closed out a shocking year with a fresh five-year price low, falling more than 50 percent from their June highs.

The decline continues to bedevil the markets. Sensing a rally was in order, speculators had dumped money into energy stocks throughout the month of December, hoping to buy up positions at basement prices. But Bloomberg reports that long positions in West Texas Intermediate declined by the most since August for the week ending on December 23, an indication that the markets have lost confidence in a swift rebound for oil prices.

This portends a longer period of low oil prices, and with that, a cutback in drilling and job losses in the U.S. oil patch. Baker Hughes reported that the rig count took another significant hit in the week ending on December 29, falling by 35 to a total of 1,840 oil and gas rigs in operation. Across the country, exploration companies are slashing their capital expenditures for the coming year to reflect the poor price environment.

That is going to have an impact on employment. In a recent example, American Eagle Energy, a small oil producer in North Dakota, decided to call off drilling entirely until oil prices rebound.

Less drilling will not only lead to a loss of jobs for oil workers, but the services that pop up around drilling sites – restaurants, bars, construction, and more – are feeling the slowdown as well.

In one example recently reported by Bloomberg, a private club in Williston, North Dakota has been shuttered because it failed to pay rent. “The Bakken Club,” which offered exclusive services including fine dining, airport shuttling, and corporate events, was a place where “like-minded individuals can further their business relationships.” Memberships ranged from $5000 to $25,000. Unfortunately for The Bakken Club, such lavish living becomes harder to maintain when oil prices crash.

But it won’t just be the profligate that feel the brunt of a depressed oil market. Civeo, a Houston-based company that builds lodging for oil workers, announced on December 29 that it would cut its workforce by 45 percent because of lower demand for “man camp” trailers.

According to an assessment from the Federal Reserve Bank of Dallas, an estimated 250,000 jobs across eight U.S. states could be lost in 2015 if oil prices don’t rise. More than 50 percent of those job losses would occur in Texas, which leads the nation in oil production.

There are some early signs that a slowdown in drilling could spread to the manufacturing sector in Texas. Companies have sprung up during the shale boom to build metal, machinery, pipes, electrical equipment, chemicals, and other support services. But with the drilling climate taking a turn for the worse, manufactures are starting to feel the chill as well.

The Dallas Fed reported a decline in new orders in a key manufacturing survey. One executive at a metal manufacturing company said in the survey, “the drop in crude oil prices is going to make things ugly… quickly.” Another company that manufactures machinery told the Dallas Fed, “Low oil prices will drive reductions in U.S. drilling rigs, which will in turn reduce the market for our products.”

The sentiment was similar for a chemical manufacturer, who said “lower oil prices will adversely impact margins. Energy volatility will cause our customers to keep inventories tight.”

States like Texas, North Dakota, Oklahoma, and Louisiana have seen their economies boom over the last few years as oil production surged. But the sector is now deflating, leaving gashes in employment rolls and state budgets.

With such extensive dependence on oil for prosperity in these states, the pain will mount if oil prices stay low. By Nick Cunningham, Oilprice.com

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate “beer money.” I appreciate it immensely. Click on the beer mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

When credit breaks, prices do not rise in the event of a shortage, rather the ability of customers to meet any price declines. That’s what is indeed taking place right now not just in the US oil patch but across commodities, in retail sales and around the world.

Monetary easing has succeeded … in shifting purchasing power from customers toward big business and lenders: credit is broken. Business must retire its loans, they need customers to take on the business’ repayment obligations. Sadly, along with an energy shortage is a credit shortage: little today … none tomorrow.

Nobody will have seen this coming … HEY! Folks fail to understand the stimulus dynamic ‘sdrawkcab gnikrow’ under their noses.

You can thank finance, the shills in the media, their ‘associates’ in government(s) and all those wasteful fools and their automobiles.

Julian the Apostate

Jan 2, 2015 at 7:08 pm

Steve, I understand everything you said except the wasteful fools in their automobiles part. Traffic has dropped dramatically all over the country. I know, because I’m on the road all over the country. I’m not seeing much of an upswing even with the current gas prices. I used to dread Memorial and Labor Day weekends, but since 2009 it’s just another day at the office.
When gas was first used in automobiles it was a waste product that was dumped in the creeks and rivers. A river in Pennsylvania actually caught fire and burned.
One of the hardest innovations to come up with is a Prime mover. There have been only 3 in recorded history. Beasts of burden (horses, oxen etc.) the external combustion engine (steam age) and the internal combustion engine. Sure, there have been flirtations with atomic power, electric power, wind and solar but these have never become industry standards. What would be your solution? Government subsidies always flop with a dull thud.